KUBIX REALTIES LLP,PUNE vs. ACIT, CIRCLE -14 PUNE, PUNE

This is an appeal filed by the assessee directed against the order of the National Faceless Appeal Centre, Delhi [‘NFAC’] dated 23.04.2024 for the assessment year 2007-08.

Briefly, the facts of the case are that the assessee is a company incorporated under the provisions of Companies Act, 1956. It is engaged in the business of Construction. The Return of Income for the A.Y. 2007-08 was filed on 17.10.2007 declaring Nil income. Against the said return of income, the assessment was completed by the ITO, Ward-11(3), Pune vide order dated 30.12.2009 passed u/s.143(3) of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) accepting the returned income.

Subsequently, on receipt of the information based on the information obtained from search operations conducted in the premises of one Mr. Pravin Kumar Jain Group that the appellant company is a beneficiary of the accommodation entries provided by said Mr. Pravin Kumar Jain Group, the Assessing Officer (AO) formed an opinion that income escaped assessment to tax. Accordingly, a notice u/s.148 was issued to the appellant company on 28.03.2014 after recording the reasons for re-opening the assessment after obtaining the approval from the Joint Commissioner of Income-tax. On receipt of the said notice, the appellant company filed a letter dated 24.04.2014 requesting the AO to treat the original return of income filed on 17.10.2007 as return in response to notice u/s.148 of the Act.

The assessee company also requested the AO to furnish the reasons recorded for reopening the assessment. On receipt of the reasons from the AO, the assessee company filed objections challenging the validity of approval obtained u/s.151 of the Act. Against the said return of income, the assessment was completed by the AO vide order dated 24.03.2015 passed u/s.143(3) r.w.s.147 of the Act at a total income of Rs.1,30,00,000/-. While doing so, the AO had treated the unsecured loans received from Mr. Pravin Kumar Jain Group of companies as unexplained money of the assessee company holding it as sham transaction.

Being aggrieved, an appeal was filed before the CIT(A)/NFAC challenging the very validity of the approval u/s.151 as well as on the merits of the addition made. The appellant company contended that the approval obtained u/s.151 is not valid, in terms of provisions of section 151(1) of the Act, the Assessing Officer shall not issue notice u/s.148 after expiry of period of four years from the end of the relevant assessment year unless the Principal Chief Commissioner or the Chief Commissioner, Principal Commissioner or Commissioner as the case may be is satisfied on the reasons recorded by the AO, that is a fit case for issue of notice u/s.148 whereas in the present case, approval of Joint Commissioner of Income-tax was only obtained. The said contention of the appellant was rejected by the ld. CIT(A)/NFAC by holding that such defect is curable and the assessment cannot be held to be invalid, placing reliance on the provisions of section 292B of the Act. On merits also, the addition was confirmed by the ld.CIT(A)/NFAC placing reliance on the decision of Hon’ble Supreme Court in the case of Pr.CIT vs. NRA Iron & Steel Pvt. Ltd.

Being aggrieved, the appellant company is in appeal before the Tribunal in the present appeal.

The ld. Authorised Representative for the assessee submits that the approval obtained from the Joint Commissioner of Income-tax is invalid, as the satisfaction had been issued by the Joint Commissioner of Income-tax, instead of Principal Chief Commissioner or the Chief Commissioner, Principal Commissioner or Commissioner as the case may be in accordance with the provisions of section 151(1) of the Act placing reliance on the decision of Hon’ble Bombay High Court in the case of Thirdware Solutions Ltd. Vs. DCIT (2023) 146 taxmann.com 364 (Bom.).

On the other hand, the ld. Sr. DR submits that recording of satisfaction by the Joint Commissioner of Income-tax instead of Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is merely a curable defect in terms of provisions of section 292B of the Act. Therefore, the order passed by the CIT(A)/NFAC does not require any interference by this Tribunal. On merits, he submits that the addition should be sustained in view of orders of this Tribunal on the same issue.

We heard the rival submissions and perused the material on record. The solitary issue in the present appeal relates to the validity of the approval obtained u/s.151(1) for issue of notice u/s.148 of the Income-tax Act, 1961. In the present case, the original assessment was completed under the provisions of section 143(3) vide order dated 30.12.2009. The sanction of the specified authority u/s.151(1) is a condition precedent for issue of notice u/s.148. The provisions of section 151 mandates that prior sanction of Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is required to be obtained for issuance of notice u/s.148 if the period of four years had elapsed from the end of the relevant assessment year. In the present case, the notice u/s.148 of the Act was issued on 28.03.2014 and the relevant A.Y. is 2007-08. Thus, there is no dispute that period of more than four years had elapsed from the end of the relevant assessment year and the approval is required to be obtained only from the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, as the case may be, whereas the sanction was obtained from the Joint Commissioner of Income-tax. The failure of the AO to obtained prior permission from the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner as the case may be is against the provisions of section 151. As evident from the assessment order, the AO had not sought the sanction from the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, but of the Joint Commissioner of Income-tax.

It is trite law that when the statute mandates the satisfaction of the particular functionary for the exercise of power, the satisfaction must be of that authority. Where a statute requires something to be done in a particular manner it has to be done in that manner and in no other manner. References in this regard can be made to the decision of Hon’ble Delhi High Court in the case of CIT v. SPL's Siddhartha Ltd. (2012) 345 ITR 223, decision of Hon’ble Bombay High Court in the case of Ghanshyam K. Khabrani Vs. ACIT (2012) 364 ITR 443 (Bom.), CIT Vs. Aquatic Remedies Pvt. Ltd. 446 ITR 545, Reliable Finhold Ltd. vs. Union of India (2014 369 ITR 419 (All), CIT Vs. H.M. Constructions (2014) 366 ITR 277 (Karn), Dr. Shashi Kant Garg Vs. CIT (2006) 285 ITR 158 (All) and East India Hotels Ltd. Vs. Dy.CIT (1993) 204 ITR 435 (Cal.).

The sanction obtained from a wrong authority vitiates the notice u/s.148 of the Act. The issue of notice u/s.148 of the Act in the instant case is bad in law.

Further, such defect is not curable under the provisions of section 292B of the Act as held by the Hon’ble Rajasthan High Court in the case of Dhadda Exports and ITO and Another (2015 377 ITR 347 (Raj.). The relevant paragraph of the judgment is reproduced below :

In view of the settled legal position, we hold that the order passed by the CIT(A) is illegal and cannot be sustained in the eyes of law, accordingly set-aside. The reassessment proceedings initiated also are hereby quashed.

In the result, the appeal filed by the assessee is allowed.